ATO’s 10 tax return ‘red flags’
FAILING to list your spouse, claiming the maximum "receipt-less" deductions or forgetting to update your personal details are among the 10 things likely to get your tax return "red flagged" by the Australian Taxation Office this year.
That's according to Liz Russell, senior tax agent with Etax.com.au, who said people making these mistakes could have their tax refunds delayed and potentially face penalty fees and interest charges.
"The early lodgers tend to be a little more caught out than someone who's prepared to wait a month," Ms Russell said.
"They want to get their tax return early, they're hanging out for that refund and they don't take time to go through their information. They get burned in six months time when they ATO does their checking and come across a missing PAYG certificate and they end up with a bill."
Ms Russell said often people might get to the end of the year and forget about a part-time job they had. "Sometimes they've got a little hobby business like Uber or Airtasker and think they don't need to put it down," she said.
It comes as the ATO reveals the so-called "income tax gap" for individuals is nearly three-and-a-half times that of big business, with each Australian cheating the tax man an average of $906. The tax gap is the ATO's estimate of how much tax it misses out on through dodgy claims.
In 2014-15, the estimated tax gap for individuals was 6.4 per cent, or $8.7 billion, driven primarily by incorrectly claimed work-related expenses. In comparison, the net income tax gap for large corporates was estimated at 5.8 per cent, or $2.5 billion.
The tax gap was calculated through a series of random audits, with those findings extrapolated across the entire taxpaying population. "Seven out of 10 returns randomly selected for review had one or more errors," ATO deputy commissioner Alison Lendon said in a statement.
"What we have seen is that most people make small, but avoidable, errors so we will ramp up our assistance to help these people understand their obligations and get things right.
"But we are also asking people to take just a little extra care with what they claim, because all of those little amounts add up.
"A smaller number of people are deliberately doing the wrong thing - that has a significant impact on revenue. These people can expect closer attention from us, especially this tax time."
The ATO said it would increasingly use data matching technology and information provided by third parties such as financial institutions and employers to identify mistakes. "The government announced additional funding in the 2018 budget to support our efforts," Ms Lendon said.
"This will allow us to continue to make lodging returns simpler for taxpayers and their agents by improving services and preventing errors. It will also see us ramp up our focus on higher-risk behaviours such as repeated and intentional noncompliance, fraud and deliberately taking positions contrary to law.
"We are also taking further steps to address the error rate in agent-prepared returns, which is currently higher than the error rate for self-prepared returns. While the majority of mistakes made by agents are avoidable, we are concerned to see a minority of tax agents exaggerating or falsifying claims to attract clients or retain their market share.
"The ATO works alongside the Tax Practitioners Board to identify and closely monitor these agents. Where we see evidence of unprofessional conduct, we will take action to protect the community and the integrity of the tax system."
Ms Russell said tax agents often had less information than the ATO. "We would like to make sure [clients] haven't missed something," she said. "[But] it's their responsibility. We're here to help them and give them guidance, but we can only deal with what we're given."
THE 10 TAX RETURN RED FLAGS
1. You haven't declared all of your income: The ATO knows about the money you received from Centrelink or earned on those occasional Uber rides or Airtasker jobs.
2. You have claimed all 'receipt-less' deductions to the max: Work-related deductions to $300, laundry expense to $150 and car expenses for 5000km. The ATO is paying special attention to work-related deductions this year.
3. You are claiming substantially more than your peers: The ATO benchmarks all people in the same occupation against each other. If you're claiming much higher deductions than average, the ATO might take a closer look. That doesn't mean you shouldn't claim all of the deductions you're entitled to, but you should always make sure you have evidence to support your claims.
4. You have an existing ATO or other government debt: If you have an existing debt with the ATO, or Centrelink or the Family Assistance Office, or any other government agency, your return may be delayed as the ATO will often use your tax refund to pay down these other agency debts.
5. You haven't updated your personal details: If you've changed your name since you last lodged a tax return - for example, if you've married and changed your surname - and you haven't told the ATO, your return could be delayed while they verify your identity, as your name no longer matches their records.
6. Your employer hasn't submitted your PAYG to the ATO: When your tax return is received by the ATO, they check the income information matches the data provided by your employer. If your employer doesn't submit your PAYG to the ATO, then they don't have a reference point to check against and can sometimes delay your return.
7. You have old overdue tax returns: If you've been dragging your feet and have old overdue tax returns to lodge, the ATO can sometimes delay processing of your return while they wait for you to get your affairs up to date.
8. You've haven't declared a capital gain: If you've had a Capital Gains Event (CGT), you have to include "Item 18 - Capital gains" on your tax return. If you've sold shares or a rental property, and didn't declare it on your tax return, the ATO might flag your return for a closer look. Part of the ATO's sophisticated technology allows it to data match with other government agencies and financial institutions.
9. You haven't included your spouse, or their name is wrong: If you have a spouse, you need to include their details on your tax return.
10. You forgot to include bank interest: If you make any money from bank savings accounts, it needs to be included on your return. Leave it off and you run the risk of delays with the ATO.